PayPal Reports Fourth Quarter and Full Year 2017 Results

SAN JOSE, Calif.--(BUSINESS WIRE)--
Global technology platform and digital payments leader PayPal Holdings,
Inc. (NASDAQ: PYPL) today announced fourth quarter and full year results
for the period ended December 31, 2017.

"PayPal had a transformative year in 2017. We brought record numbers
of new customer accounts to our platform by democratizing financial
services for consumers and commerce capabilities for merchants. We also
substantially expanded our opportunities for future growth and redefined
our competitive position through our successful partnership strategy
driven by our open platform architecture," said Dan Schulman, President
and CEO of PayPal.

Schulman continued, "I am very pleased to announce that PayPal and
eBay have signed a term sheet to make PayPal available, as a way to pay
on eBay, through July 2023.We enter 2018 with strong momentum
supporting an increasingly differentiated and expansive value
proposition, and a focused commitment to deliver increasing value to our
customers and shareholders."

Significant events in fourth quarter 2017

PayPal and Synchrony Financial announced an agreement expanding their
consumer credit relationship. Under the terms of the transaction,
Synchrony Financial will acquire PayPal's U.S. consumer credit
receivables portfolio, which totaled approximately $6.4 billion in
receivables as of December 31, 2017. Subject to regulatory approval
and other customary conditions, this transaction is expected to close
in the third quarter of 2018.

The application of held for sale accounting relating to the U.S.
consumer credit receivables resulted in the reversal of the
related allowance for losses on interest and principal receivables.

The impact from the one-time adjustments related to held for sale
accounting on GAAP net revenues was $39 million and on GAAP
transaction and loan losses was $283 million, a benefit to GAAP
earnings per diluted share (EPS) of $0.25.

PayPal's GAAP results also include the impact of the recently enacted
Tax Cut and Jobs Act of 2017 (the "Tax Act"), which resulted in a
preliminary net tax expense of $180 million.

Financial highlights for fourth quarter 2017 include:

GAAP revenue growth of 26% to $3.74 billion, or 26% on a foreign
currency neutral (FX-neutral) basis with non-GAAP revenue growth of
24% to $3.71 billion, or 24% on a FX-neutral basis

GAAP EPS growth of 28% to $1.47, which includes the impact of held for
sale accounting of $0.26, partially offset by the impact from the Tax
Act of ($0.15), with non-GAAP EPS growth of 27% to $1.90

Returned $1.01 billion to stockholders by repurchasing 19.7 million
shares of common stock at an average price of $51

Fourth quarter and full year 2017 impact of held for sale accounting
on cash flow

The application of held for sale accounting resulted in a change to the
characterization of cash flows related to the U.S. consumer credit
portfolio. Cash flows related to repayments of loans originated prior to
the application of held for sale accounting continue to be reflected in
cash flow from investing activities. Cash flows related to the net
changes in loans originated following our application of held for sale
accounting are now reflected in cash flow from operating activities. In
the fourth quarter, $1.3 billion of net cash outflows recognized in cash
flow from operating activities would previously have been recognized in
cash flow from investing activities. This change resulted in operating
cash flow of ($147) million with free cash flow of ($327) million in the
fourth quarter. For full year 2017, inclusive of the impact from held
for sale accounting, PayPal is reporting operating cash flow of $2.5
billion with free cash flow of $1.9 billion.

Operating highlights for fourth quarter 2017 include:

8.7 million active customer accounts added, with net new actives up 61%

2.2 billion payment transactions, up 25%

$131 billion in total payment volume (TPV), up 32%, or 29% on an
FX-neutral basis

PayPal processed $131 billion in TPV in the fourth quarter, representing
growth of 32%, or 29% on an FX-neutral basis. Merchant Services TPV grew
36%, or 33% on an FX-neutral basis, and represented 87% of overall TPV
for the quarter. eBay volume grew 10%, or 7% on an FX-neutral basis, and
represented approximately 13% of overall TPV for the fourth quarter
versus approximately 16% a year ago.

Person-to-Person (P2P) volume grew 50% to approximately $27 billion, and
represented approximately 20% of TPV in the fourth quarter. Venmo, the
company's social payments platform, processed $10.4 billion in payment
volume in the fourth quarter, an increase of 86% year over year, and for
the first time surpassed $10 billion in payment volume processed in a
quarter. For the full year, Venmo's volume increased 97% with
approximately $35 billion in payment volume processed.

Driven by strong mobile engagement on our platform over the holiday
shopping season, PayPal processed approximately $48 billion in mobile
payment volume in the fourth quarter, representing approximately 53%
growth year over year.

Extending PayPal's global reach and merchant offering

During the fourth quarter, PayPal announced the launch of domestic
operations in India. Merchants offering PayPal will be able to process
both local and global payments through the platform, gaining access to
PayPal's more than 200 million customers around the world and in India
through a single integration.

PayPal also made progress introducing Pay with Venmo to consumers. More
than two million U.S. merchants now offer Venmo as a mobile payment
option through the PayPal and Braintree platforms.

One Touch, PayPal's innovative checkout experience, continues its global
roll out, ending the fourth quarter with 80 million consumers opted in,
up from 40 million a year ago. At the end of 2017, eight million
merchants offered One Touch compared with five million a year ago.

Subsequent to the end of the fourth quarter, PayPal and eBay signed a
term sheet to continue to feature PayPal at checkout on the eBay
Marketplace through July 2023.

PayPal expects revenue to grow 15 - 17% at current spot rates and 14 -
16% on an FX-neutral basis, to a range of $15.00 - $15.25 billion.
Full year 2018 revenue guidance includes an expected impact related to
the sale of U.S. consumer credit receivables to Synchrony Financial of
~3.5 percentage points for full year 2018, assuming the transaction
closes on July 1, 2018.

PayPal expects GAAP earnings per diluted share in the range of $1.79 -
$1.86 and non-GAAP earnings per diluted share in the range of $2.24 -
$2.30.

Please see "Non-GAAP Financial Measures" and "Non-GAAP Measures of
Financial Performance" for important additional information.

Quarterly conference call and webcast

PayPal Holdings, Inc. will host a conference call to discuss fourth
quarter and full year 2017 results at 3:00 p.m. Pacific Time today. A
live webcast of the conference call, together with a slide presentation
that includes supplemental financial information and reconciliations of
certain non-GAAP measures to their most directly comparable GAAP
measures, can be accessed through the company's Investor Relations
website at https://investor.paypal-corp.com.
In addition, an archive of the webcast will be accessible for 90 days
through the same link.

Fueled by a fundamental belief that having access to financial services
creates opportunity, PayPal Holdings, Inc. (NASDAQ: PYPL) is committed
to democratizing financial services and empowering people and businesses
to join and thrive in the global economy. Our open digital payments
platform gives PayPal's 227 million active account holders the
confidence to connect and transact in new and powerful ways, whether
they are online, on a mobile device, in an app, or in person. Through a
combination of technological innovation and strategic partnerships,
PayPal creates better ways to manage and move money, and offers choice
and flexibility when sending payments, paying or getting paid. Available
in more than 200 markets around the world, the PayPal platform,
including Braintree, Venmo and Xoom, enables consumers and merchants to
receive money in more than 100 currencies, withdraw funds in 56
currencies and hold balances in their PayPal accounts in 25 currencies.
For more information on PayPal, visit https://www.paypal.com/about.
For PayPal Holdings, Inc. financial information, visit https://investor.paypal-corp.com.

Presentation

All growth rates represent year-over-year comparisons, except as
otherwise noted. FX-neutral results are calculated by translating the
current period local currency results by the prior period exchange rate.
FX-neutral growth rates are calculated by comparing the current period
FX-neutral results by the prior period results, excluding the impact
from hedging activities. All amounts in tables are presented in U.S.
dollars, rounded to the nearest millions, except as otherwise noted. As
a result, certain amounts and rates may not sum or recalculate using the
rounded dollar amounts provided.

Non-GAAP financial measures

This press release includes the following financial measures defined as
"non-GAAP financial measures" by the Securities and Exchange Commission
(SEC): non-GAAP revenue, non-GAAP net income, non-GAAP earnings per
diluted share, non-GAAP operating income, non-GAAP operating margin,
non-GAAP effective tax rate and free cash flow. For an explanation of
the foregoing non-GAAP measures, please see "Non-GAAP Measures of
Financial Performance" included in this press release. These measures
may be different from non-GAAP financial measures used by other
companies. The presentation of this financial information, which is not
prepared under any comprehensive set of accounting rules or principles,
is not intended to be considered in isolation of, or as a substitute
for, the financial information prepared and presented in accordance with
generally accepted accounting principles (GAAP). For a reconciliation of
these non-GAAP financial measures to the most directly comparable GAAP
measures, see "Non-GAAP Measures of Financial Performance,"
"Reconciliation of GAAP Net Revenues to Non-GAAP Net Revenues and
GAAP Operating Margin to Non-GAAP Operating Margin," "Reconciliation of
GAAP Net Income to Non-GAAP Net Income, GAAP Diluted EPS to Non-GAAP
Diluted EPS and GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate,"
and "Reconciliation of Operating Cash Flow to Free Cash Flow."

Forward-looking statements

This press release contains forward-looking statements relating to,
among other things, the future results of operations, financial
condition, expectations and plans of PayPal Holdings, Inc. and its
consolidated subsidiaries that reflect PayPal's current projections and
forecasts. Forward-looking statements can be identified by words such as
"may," "will," "would," "should," "could," "expect," "anticipate,"
"believe," "estimate," "intend," "plan," "project," "forecast" and other
similar expressions. Forward-looking statements include, but are not
limited to, statements regarding projected financial results for the
first quarter and full year 2018, the expected impact of the Tax Cuts
and Jobs Act, and projected future growth of PayPal's businesses.
Forward-looking statements are based upon various estimates and
assumptions, as well as information known to PayPal as of the date of
this press release, and are inherently subject to numerous risks and
uncertainties. Accordingly, actual results could differ materially from
those predicted or implied by forward-looking statements. Factors that
could cause or contribute to such differences include, but are not
limited to: changes in political, business and economic conditions,
including any regional or general economic downturn or crisis and any
conditions that affect payments or e-commerce growth; fluctuations in
foreign currency exchange rates; the competitive, regulatory, payment
card association-related and other risks specific to the PayPal, PayPal
Credit, Braintree, Venmo, Xoom, Paydiant and other products, especially
as PayPal continues to expand geographically and introduce new products
and as new laws and regulations related to payments and financial
services come into effect; the impact of PayPal's customer choice
initiatives, including on its funding mix and transaction expense;
PayPal's ability to successfully compete in an increasingly competitive
environment for its businesses, products and services, including
competition for consumers and merchants and the increasing importance of
mobile payments and mobile commerce; the outcome of legal and regulatory
proceedings and PayPal's need and ability to manage regulatory, tax and
litigation risks as its products and services are offered in more
jurisdictions and applicable laws become more restrictive; changes to
PayPal's capital allocation or management of operating cash; uncertainty
surrounding the implementation and impact of the United Kingdom's formal
notification of its intent to withdraw from the European Union;
cyberattacks and security vulnerabilities in PayPal products and
services that could reduce revenue, increase costs, harm us
competitively, or lead to liability; the effect of management changes
and business initiatives; any changes PayPal may make to its product
offerings; the effect of any natural disasters or other business
interruptions on PayPal or PayPal's customers; PayPal's ability to
timely upgrade and develop its technology systems, infrastructure and
customer service capabilities at reasonable cost; PayPal's ability to
maintain the stability, security and performance of its Payment Platform
while adding new products and features in a timely fashion; the risk
that the planned transaction with Synchrony Financial will not be
completed or that we may not realize the expected benefits of the
transaction; risks that planned acquisitions will not be completed on
contemplated terms, or at all, and that any businesses PayPal may
acquire will not perform in accordance with its expectations; and
PayPal's ability to profitably integrate, manage and grow businesses
that have been acquired or may be acquired in the future. The
forward-looking statements in this release do not include the potential
impact of any acquisitions or divestitures that may be announced and/or
completed after the date hereof.

More information about factors that could adversely affect PayPal's
results of operations, financial condition and prospects or that could
cause actual results to differ from those expressed or implied in
forward-looking statements is included under the captions "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in PayPal's most recent annual report on Form
10-K and its subsequent quarterly reports on Form 10-Q, copies of which
may be obtained by visiting PayPal's Investor Relations website at https://investor.paypal-corp.com
or the SEC's website at www.sec.gov.
All information in this release is as of January 31, 2018. For the
reasons discussed above, you should not place undue reliance on the
forward-looking statements in this press release. PayPal assumes no
obligation to update such forward-looking statements.

Other value added services: Net revenues derived
principally from interest and fees earned on our loans and
interest receivable, net and held for sale portfolio,
subscription fees, gateway fees, gains on sale of participation
interest in certain consumer loans receivable and merchant
working capital loans and advances, revenue share we earn
through partnerships, interest earned on certain PayPal customer
account balances, fees earned through our Paydiant products and
other services that we provide to consumers and merchants.

Net Revenues by Type

Three Months Ended

December 31,2017

September 30,2017

June 30,2017

March 31,2017

December 31,2016

(In millions, except percentages)

Transaction revenues

$

3,221

$

2,833

$

2,749

$

2,599

$

2,615

Current quarter vs prior quarter

14

%

3

%

6

%

(1

)%

13

%

Current quarter vs prior year quarter

23

%

22

%

18

%

16

%

16

%

Percentage of total

86

%

87

%

88

%

87

%

88

%

Other value added services

523

406

387

376

366

Current quarter vs prior quarter

29

%

5

%

3

%

3

%

4

%

Current quarter vs prior year quarter

43

%

15

%

18

%

23

%

24

%

Percentage of total

14

%

13

%

12

%

13

%

12

%

Total net revenues

$

3,744

$

3,239

$

3,136

$

2,975

$

2,981

Current quarter vs prior quarter

16

%

3

%

5

%

—

%

12

%

Current quarter vs prior year quarter

26

%

21

%

18

%

17

%

17

%

Net Revenues by Geography

Three Months Ended

December 31,2017

September 30,2017

June 30,2017

March 31,2017

December 31,2016

(In millions, except percentages)

U.S. net revenues

$

2,045

$

1,743

$

1,690

$

1,606

$

1,574

Current quarter vs prior quarter

17

%

3

%

5

%

2

%

10

%

Current quarter vs prior year quarter

30

%

21

%

20

%

20

%

21

%

Percent of total

55

%

54

%

54

%

54

%

53

%

International net revenues

1,699

1,496

1,446

1,369

1,407

Current quarter vs prior quarter

14

%

3

%

6

%

(3

)%

14

%

Current quarter vs prior year quarter

21

%

22

%

16

%

14

%

12

%

(FXN) Current quarter vs prior year quarter

21

%

22

%

20

%

18

%

17

%

Percent of total

45

%

46

%

46

%

46

%

47

%

Total net revenues

$

3,744

$

3,239

$

3,136

$

2,975

$

2,981

Current quarter vs prior quarter

16

%

3

%

5

%

—

%

12

%

Current quarter vs prior year quarter

26

%

21

%

18

%

17

%

17

%

(FXN) Current quarter vs prior year quarter

26

%

22

%

20

%

19

%

19

%

PayPal Holdings, Inc.

Unaudited Supplemental Operating Data

Three Months Ended,

December 31,2017

September 30,2017

June 30,2017

March 31,2017

December 31,2016

(In millions, except percentages)

Active customer accounts(1)

227

218

210

203

197

Current quarter vs prior quarter

4

%

4

%

3

%

3

%

3

%

Current quarter vs prior year quarter

15

%

14

%

12

%

11

%

10

%

Number of payment transactions(2)

2,199

1,900

1,775

1,732

1,755

Current quarter vs prior quarter

16

%

7

%

2

%

(1

)%

16

%

Current quarter vs prior year quarter

25

%

26

%

23

%

23

%

23

%

Payment transactions per active account(3)

33.6

32.8

32.3

31.7

31.1

Current quarter vs prior quarter

2

%

2

%

2

%

2

%

3

%

Current quarter vs prior year quarter

8

%

9

%

10

%

12

%

13

%

Total Payment Volume(4)

$

131,449

$

114,045

$

106,444

$

99,327

$

99,348

Current quarter vs prior quarter

15

%

7

%

7

%

—

%

14

%

Current quarter vs prior year quarter

32

%

30

%

23

%

23

%

22

%

(FXN) Current quarter vs prior year quarter

29

%

29

%

26

%

25

%

25

%

Transaction Expense Rate(5)

0.96

%

0.97

%

1.00

%

0.99

%

0.96

%

Transaction and Loan Loss Rate(6)

0.03

%

0.32

%

0.29

%

0.30

%

0.31

%

Transaction Margin(7)

65.1

%

54.8

%

56.3

%

56.7

%

57.7

%

(1) An active customer account is a registered account
that successfully sent or received at least one payment or payment
reversal through our Payments Platform, excluding transactions
processed through our gateway and Paydiant products, in the past
12 months.

(2) Payment transactions are the total number of
payments, net of payment reversals, successfully completed through
our Payments Platform, excluding transactions processed through
our gateway and Paydiant products.

(3) Number of payment transactions per active account
reflects the total number of payment transactions within the
previous 12 month period, divided by active customer accounts at
the end of the period.

(4) Total Payment Volume or "TPV" is the value of
payments, net of payment reversals, successfully completed through
our Payments Platform, excluding transactions processed through
our gateway and Paydiant products.

These non-GAAP measures are not in accordance with, or an alternative
to, measures prepared in accordance with GAAP and may be different from
non-GAAP measures used by other companies. In addition, these non-GAAP
measures are not based on any comprehensive set of accounting rules or
principles. Non-GAAP measures have limitations in that they do not
reflect all of the amounts associated with the company's results of
operations as determined in accordance with GAAP. These measures should
only be used to evaluate the company's results of operations in
conjunction with the corresponding GAAP measures.

Reconciliation to the most directly comparable GAAP measure of all
non-GAAP measures included in this press release can be found in the
tables included in this press release.

These non-GAAP measures are provided to enhance investors' overall
understanding of the company's current financial performance and its
prospects for the future. Specifically, the company believes the
non-GAAP measures provide useful information to both management and
investors by excluding certain expenses, gains and losses, as the case
may be, that may not be indicative of its core operating results and
business outlook. In addition, because the company has historically
reported certain non-GAAP results to investors, the company believes
that the inclusion of non-GAAP measures provides consistency in the
company's financial reporting.

For its internal budgeting process, and as discussed further below, the
company's management uses financial measures that do not include
stock-based compensation expense, employer payroll taxes on stock-based
compensation, amortization or impairment of acquired intangible assets,
impairment of goodwill, restructuring-related charges, other certain
gains, losses or charges that are not indicative of the company's core
operating results and the income taxes associated with the foregoing. In
addition to the corresponding GAAP measures, the company's management
also uses the foregoing non-GAAP measures in reviewing the financial
results of the company.

Stock-based compensation expense and related employer payroll taxes.
This consists of expenses for equity awards under our equity incentive
plans. We exclude stock-based compensation expense from our non-GAAP
measures primarily because they are non-cash expenses. The related
employer payroll taxes are dependent on our stock price and the timing
and size of exercises and vesting of equity awards, over which
management has limited to no control, and as such management does not
believe it correlates to the operation of our business.

Amortization or impairment of acquired intangible assets, impairment
of goodwill, and transaction expenses from the acquisition or disposal
of a business. We incur amortization or impairment of acquired
intangible assets and goodwill in connection with acquisitions and may
incur significant gains or losses or transactional expenses from the
acquisition or disposal of a business and therefore exclude these
amounts from our non-GAAP measures. We exclude these items because
management does not believe they are reflective of our ongoing operating
results.

Restructuring. These consist of expenses for employee severance
and other exit and disposal costs. The company excludes significant
restructuring charges primarily because management does not believe they
are reflective of ongoing operating results.

Certain other significant gains, losses, benefits, or charges that
are not indicative of the company's core operating results. These
are significant gains, losses, benefits, or charges during a period that
are the result of isolated events or transactions which have not
occurred frequently in the past and are not expected to occur regularly
in the future. The company excludes these amounts from its non-GAAP
results because management does not believe they are indicative of its
current or ongoing operating results.

Tax effect of non-GAAP adjustments. This adjustment is made to
present stock-based compensation and the other amounts described above
on an after-tax basis consistent with the presentation of non-GAAP net
income.

The company also uses free cash flow, a non-GAAP measure. Free cash flow
represents operating cash flows less purchases of property and
equipment. The company considers free cash flow to be a liquidity
measure that provides useful information to management and investors
about the amount of cash generated by the business after the purchases
of property, buildings, and equipment, which can then be used to, among
other things, invest in the company's business, make strategic
acquisitions, and repurchase stock. A limitation of the utility of free
cash flow as a measure of financial performance is that it does not
represent the total increase or decrease in the company's cash balance
for the period.

In addition to the non-GAAP measures discussed above, the company also
analyzes certain measures, including net revenues and operating
expenses, on an FX-neutral basis to better measure the comparability of
operating results between periods. The company believes that changes in
foreign currency exchange rates are not indicative of the company's
operations and evaluating growth in net revenues and operating expenses
on an FX-neutral basis provides an additional meaningful and comparable
assessment of these measures to both management and investors.
FX-neutral results are calculated by translating the current period's
local currency results by the prior period's exchange rate. FX-neutral
growth rates are calculated by comparing the current period's FX-neutral
results by the prior period's results, excluding the impact from hedging
activities.

PayPal Holdings, Inc.

Reconciliation of GAAP Net Revenues to Non-GAAP Net Revenues and

GAAP Operating Margin to Non-GAAPOperating Margin

Three Months Ended December 31,

Year Ended December 31,

2017

2016

2017

2016

(In millions)

GAAP net revenues

$

3,744

$

2,981

$

13,094

$

10,842

Other(1)

(39

)

—

(39

)

—

Non-GAAP net revenues

$

3,705

$

2,981

$

13,055

$

10,842

(1) Elimination of allowance on interest receivable due
to the U.S. consumer credit portfolio designation as held for sale.

Three Months Ended December 31,

Year Ended December 31,

2017

2016

2017

2016

(In millions, except percentages)

GAAP operating income

$

843

$

460

$

2,127

$

1,586

Stock-based compensation expense and related employer payroll taxes

223

127

761

455

Amortization of acquired intangible assets(1)

58

32

129

133

Restructuring

—

—

40

—

Other(2)

(317

)

—

(302

)

—

Total non-GAAP operating income adjustments

(36

)

159

628

588

Non-GAAP operating income

$

807

$

619

$

2,755

$

2,174

Non-GAAP operating margin

22

%

21

%

21

%

20

%

(1) Includes $30 million impairment related to a
portion of acquired TIO customer-related intangible assets in 2017.

(2) Includes elimination of allowance on loans
receivable ($283 million), allowance on interest receivable ($39
million) due to the U.S. consumer credit portfolio designation as
held for sale and certain fees associated with the sale ($5
million), and impairment of an investment in an intellectual
property fund ($15 million).